Mortgage lending slides further

The slump in mortgage lending continued in February, with gross lending down by 60% on February last year, the Council of Mortgage Lenders (CML) has said.

Lending, at £9.9bn, was 15% lower than in January, and was the lowest figure for any month since February 2001.

The CML said its members' ability to lend was drying up because too many savers were choosing to put their money in National Savings policies.

Mortgage rationing has led to house sales falling by more than half.

"Retail savings are now the predominant source of funding for mortgages," said Michael Coogan, the CML's director general.

"But banks and building societies have seen savings ebb away to National Savings & Investments, which has a negative impact on their ability to lend.

"Until funding improves, the capacity of lenders to lend will remain constrained," he warned.

Low interest rates

National Savings & Investments (NS&I) has already raised an extra £10bn in just the first nine months of the current financial year, far ahead of its original forecast of an extra £4bn for the whole of the year.

Of that, £6bn came in during the last three months of 2008 as the collapse of the Bradford & Bingley and Icelandic banks pushed savers into looking for a completely safe home for their money.

However, the cost for those savers has been lower interest rates on their accounts.

NS&I has brought down its savings rates in line with the fall in the Bank of England's bank rate.

This week NS&I announced that the payout rate on Premium Bonds would be cut from 1.8% to 1%, with one of the two £1m jackpot prizes being cancelled.